Cloud Services Provider Fusion (FSNN) Reports Q3 Results & Highlights
Matthew Rosen, New York, NY based Cloud Services Provider Fusion’s (NasdaqCM: FSNN) CEO stated with the release of their Q3 results, “Fusion continued to deliver solid financial performance during the third quarter of 2017, with nearly 40% growth in Business Services revenue and nearly 150% growth in Adjusted EBITDA, thanks to the contribution from the Apptix acquisition as well as solid sales bookings and installations, customer novations, and continued low churn. These results clearly demonstrate the power of our compelling strategy as the single source for the cloud. Since we announced our definitive agreement to acquire the Cloud and Business Services business of Birch in late August, both companies have been planning for the integration of our people, products, networks, and systems to ensure that the combined company – which will be one of the largest cloud services providers in North America – is positioned to begin realizing the benefits of the combination immediately after closing. We have also made substantial progress on the steps required to complete the transaction, including antitrust filings and filings with the FCC and a number of state regulatory agencies, and we expect to file the preliminary proxy this week. Given the upcoming holiday season, we believe that the process of obtaining regulatory approvals will take the close of the acquisition into the first quarter of 2018.”
Michael Bauer, Fusion’s CFO, stated, “We are very excited to complete the Birch transaction. The combined company is projected to have approximately $575 million in pro forma annual revenue and over $150 million in pro forma annual Adjusted EBITDA, including over $20 million in expected cost synergies.”
FSNN Reported the following Q3 Results & Highlights:
- Fusion’s consolidated revenue grew 21% in Q3 2017 to $36.4 million, compared to $30.2 million in Q3 2016, due to an increase in the Company’s Business Services segment revenue. Business Services segment revenue grew 38% to $29.3 million, compared to $21.3 million in Q3 2016, primarily due to the acquisition of Apptix which closed in November 2016. Carrier Services segment revenue was $7.1 million, down 20% compared to $8.9 million in Q3 2016.
- Consolidated gross margin was 45.7%, compared to 42.2% in Q3 2016. The increase was due to a higher mix of Business Services revenue, which generates a substantially higher margin than Carrier Services revenue, in 2017 as compared to 2016. Business Services gross margin was 55.5% in Q3 2017, compared to 58.0% in Q3 2016, primarily due to the addition of lower margin revenue from certain new customers the Company began servicing during the first half of 2017. Carrier Services gross margin was 5.0% compared to 4.3% in Q3 2016.
- Net loss attributable to common shareholders in Q3 2017 was $(3.9) million, or ($0.18) per share on a basic and diluted basis, compared to net loss in Q3 2016 of $(3.4) million, or ($0.23) per share on a basic and diluted basis.
- Adjusted EBITDA grew 147% to $4.2 million, compared to $1.7 million in Q3 2016, due primarily to revenue growth and a continued focus on cost controls.
- Capital expenditures in Q3 2017 totaled $1.6 million, or 4.4% of revenue. Capital expenditures in the first nine months of 2017 totaled $3.9 million, or 3.6% of revenue.
- Unlevered free cash flow was $2.6 million in Q3 2017, compared to $0.2 million in Q3 2016.
- Cash at September 30, 2017, totaled $2.3 million, compared to $7.2 million at December 31, 2016. During 2017, the Company made $2.4 million in senior debt principal payments, and reduced its revolving credit facility balance by $1.5 million.
- The Company’s $5.0 million revolving credit facility had an outstanding balance of $1.5 million at September 30, 2017, compared to $3.0 million outstanding at December 31, 2016.
- Business Services segment revenue grew 38% year-over-year to $29.3 million, over 90% of which was recurring, and grew 10% year-over-year excluding the contribution from last year’s Apptix acquisition
- Consolidated revenue grew 21% year-over-year to $36.4 million
- Consolidated gross margin increased approximately 350 basis points to 45.7%, compared to 42.2% in Q3 2016
- Net loss attributable to common shareholders totaled $(3.9) million, or $(0.18) per share on a basic and diluted basis in Q3 2017, compared to $(3.4) million, or $(0.23) per share on a basic and diluted basis in Q3 2016
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”) grew 147% year-over-year to $4.2 million, and grew 13% sequentially (see definition and further discussion about the presentation of Adjusted EBITDA, a non-GAAP measurement, below)
Unlevered Free Cash Flow, defined as Adjusted EBITDA less capital expenditures, was $2.6 million, compared to $0.2 million in Q3 2016
- New monthly recurring revenue (“MRR”) bookings were approximately $296,000, up 8% year-over-year and up 13% sequentially, while the total contract value in backlog was $13.1 million at September 30, 2017
Ended the quarter with approximately 13,300 Business Services customers with an average monthly revenue per customer (“ARPU”) of $731, compared to $568 at September 30, 2016
- Monthly churn was 0.9% at the end of the quarter, compared to 1.1% at the end of Q3 2016
- Announced the signing of a definitive agreement to acquire the Cloud and Business Services business of Birch Communications Holdings, Inc., and made significant progress toward obtaining the approvals and securing the capital required to complete the deal
- Completed the formation of Fusion Global Services, a joint venture which combined Fusion’s Carrier Services division with the Carrier Services business of XComIP, LLC